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Melvyn Bell's latest bind.

Melvyn Bell's Latest Bind

The first day of August came and went with little fanfare at State First National Bank of Texarkana.

There was, however, a break from the routine in one area of the bank.

Officials in the trust department watched the deadline pass for a $271,901 bond payment on west Little Rock's Carriage Creek Improvement District.

No payment was made.

Consequently, the improvement district's $6.72-million bond issue officially went into default.

Officials at State First National had seen the default coming last year.

As bond trustee, State First National had to dip into a $648,000 debt service reserve fund twice to keep payments on the 1987 bond issue current.

There wasn't enough money left to cover the Aug. 1 payment.

The default underscores efforts that could lead to a new owner of the improvement district, a 166-acre development that includes 235 residential lots in the Pleasant Heights, Carriage Creek and Bell Pointe subdivisions.

It also marks the latest installment in a string of bad news for Little Rock's Melvyn Bell.

The biggest dose of bad news came in a recent $12.9-million judgment against Bell in connection with the foreclosure on his 138,000-SF Market Street Plaza Shopping Center in west Little Rock.

The chairman and founder of Environmental Systems Co. isn't liable for outstanding claims stemming from the Carriage Creek project.

Bell also isn't named in a foreclosure suit filed by State First National. Darbe Development Co. and Darlene Bell are listed as defendants.

However, it was Melvyn Bell's money and name that got the Carriage Creek project going. And Bell stands to be the biggest loser if the suit goes against his interests.

Some optimistic observers thought Bell had worked out a settlement to halt the foreclosure and get the bond payment schedule back on track.

"Melvyn wasn't fighting anybody, and nobody was fighting Melvyn," one insider says. "Everything seemed to be working out."

But the deal fell apart when the Aug. 1 deadline passed without a payment.

What Went Wrong?

Insiders say Bell approached the bond trustee and the Little Rock bond underwriters of Stephens Inc. and Hill Crawford & Lanford Inc. earlier this summer to work out a settlement.

Bell pointed to heavy annual assessments on the improvement district's lots as the reason for poor lot sales and delinquent bond payments.

Only 13 of 235 lots have sold in the past three years. The current activity isn't much better.

"We have about five sales offers pending," says Larry Garner, who last year replaced Kim Moore as sales manager for Darbe Development.

Darbe Development is responsible for paying property assessments on unsold lots.

When Carriage Creek was formed, each lot in the three subdivisions was assigned a prorated slice of the bond debt. The more valuable the lot, the higher its assessment.

That allowed buyers to invest less on the front end. But it required property owners to pay the balance through annual assessments spread over as many as 11 years.

When the bond issue was structured, the arrangement was seen as a selling point for Carriage Creek, Pleasant Heights and Bell Pointe.

But Bell claims many prospective buyers weren't interested in purchasing lots unless they could make full payments at the start.

Such a change would have required an amendment to the bond issue. Underwriters and the bond trustee were agreeable to the change with one important "if."

Bell had to make the Aug. 1 payment and replenish the bond funds used to cover his earlier non-payments.

If he did that, the trustee and underwriters would talk it over with the bondholders. It would take a vote of bondholders to make such an amendment possible.

That's where the negotiations ended.

Some viewed Bell's explanation of the poor sales as an excuse for not paying his way rather than as a justification for being tardy.

People were sympathetic toward Bell, whose financial reversals were caused by the 1987 stock market crash and unwise investments.

But after all, a deal is a deal.

Legal Fight

The foreclosure suit, filed in April against Carriage Creek Property Owners Association et al for non-payment of property assessments, could make the recent bond default a moot issue.

If successful, the action effectively would give the bondholders title to the project.

Darbe Development isn't the only entity fighting the suit.

At an Aug. 12 hearing, attorneys for Little Rock's First Commercial Bank argued that their client, not the bondholders, had a first lien on the property.

If there is to be a public auction, First Commercial wants to be first in line. Any foreclosure sale would be on a lot-by-lot basis, and that could attract numerous real estate bargain hunters.

First Commercial holds a mortgage on the land predating the Carriage Creek bond issue. The June 1986 loan totaled $900,000. As of July 3, the unpaid balance was $376,00.

Lawyers for the bond trustee argue that tax liens take precedent. The legal question is whether property assessments handled through the Pulaski County assessor's office and paid to bondholders constitute a tax.

Pulaski County Chancellor Vann Smith has asked for briefs to be filed. Smith would hand down an order in late September at the earliest.

The unpaid assessments and 25 percent penalty total about $1.6 million against Darbe Development and related interests.

Some home owners aren't happy that the property owner's commission, controlled by Darbe Development, can waive the penalties against itself.

The most recent records available indicate the commission is composed of Melvyn Bell, Kim Moore and Charles Murphy III, whose Deltic Farm & Timber Co. is developing Chenal Valley.

The few individual property owners in the improvement district fear they could end up picking up the slack for Darbe Development if bonds aren't paid in a timely fashion.

"I don't have anything against Mr. Bell," says one Carriage Creek home owner. "But I don't like someone having their hands in my pocket like that.

"If I had not paid [my assessment], I don't think they would have waived my penalty."

Attorneys for the bond trustee don't believe the commissioners have the right to absolve themselves from late-payment penalties.

"We are basically challenging their authority to waive those penalties," says Little Rock attorney Greg Graham.

Those allied with the bondholders are confident they can more than recover the bond money through post-foreclosure sales.

One source estimates that debt and unpaid taxes account for 65 to 75 percent of the land value.

The question now is who will operate Carriage Creek Improvement District and pocket any profit?

PHOTO : UP THE CREEK WITHOUT A PADDLE: If foreclosure efforts are successful, Melvyn Bell's investment in Carriage Creek Improvement District could be a financial washout. The west Little Rock residential development covers 166 acres with 235 lots in three subdivisions - Carriage Creek, Pleasant Heights and Bell Pointe.
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Title Annotation:foreclosure on real estate development Carriage Creek Improvement District
Author:Waldon, George
Publication:Arkansas Business
Date:Aug 26, 1991
Previous Article:Ari's angst.
Next Article:The creative shop.

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